TuksNovation is a technology business incubator. Tuksnovation NPC been approved as a Public Benefit Organisation (PBO) set out in section 30(3) of the Income Tax Act No 58 of 1962 (The Act). The company is currently looking at options to recoup some of
Author: Peter Surtees
Important:
This answer is based on tax law year ending 28 February 2021.
Answer:
Before we think about the mechanics and tax consequences of recouping twice the seed capital by means of royalties, do you realise that doing what you suggest would imperil TuksNovation’s PBO status? It would be trading. So that is out. Relevant tax law Section 30 of the Income Tax Act is the relevant provision. “Public benefit organisation” is defined in section 30(1) and paragraph (b) reads as follows: “of which the sole or principal object is carrying on one or more public benefit activities, where- (i) all such activities are carried on in a non-profit manner and with an altruistic or philanthropic intent”. I would guess that a policy of recovering twice the seed capital would not easily pass the “sole or principal object” test. Your client might have to convert to a VCC. Before we take this matter further, I suggest you put these comments to your client. The client might have to reconsider its PBO status and run on a commercial basis.